SECURITY BANK AND TRUST COMPANY VS.

RTC OF MAKATI, MAGTANGGOL

EUSEBIO AND LEILA VENTURA
G.R. No. 113926, October 23, 1996

FACTS: On April 27, 1983, Eusebio executed a promissory note (PN) in favour of
Security Bank and Trust Company (bank) in the amount of P100, 000.00 payable in 6
monthly instalments with a stipulated interest of 23% per year up to the 5 th instalments.

On July 28, 1983, Eusebio again executed a promissory note in favour of the
bank. He bound himself to pay P100, 000.00 in 6 monthly instalments plus 23% interest
per year.

On August 31, 1983, Eusebio executed another promissory note in the amount of
P65, 000.00. He agreed to pay this note in 6 monthly instalments plus interest of 23%
per year.

On all the 3 promissory notes, Ventura had signed as a co-maker. Upon maturity
which fell on different dates, the principal balance remaining on the notes stood at:
1st PN: P16, 665.00 as of September 1983
2nd PN: P83, 333.00 as of August 1983
3rd PN: P65, 000.00 as of August 1983

Eusebio failed and refused to pay the balance payable, and so the bank filed a
case in court against him.

The lower court rendered a decision in favour of the bank and ordered Eusebio to
pay all the remaining balance plus 12% interest per year each, pay 20% of the total
amount due and payable to the bank as and by way of attorneys fees; and pay the cost
of the suit.

A motion for partial reconsideration was filed by the bank contending that the
interest rate agreed upon by them during the signing of the PNs was 23% per year; that
the interests awarded should be compounded quarterly from due date; that Ventura
should likewise be held liable to pay the balance. The lower court denied the motion to
grant the interest beyond 12% per year and held that Ventura is also liable.

ISSUE: W/N the 23% rate of interest per year agreed upon by the parties is allowed
against the Usury Law.

HELD: All the 3 promissory notes were signed in 1983 and, therefore, were already
covered by the Central Bank Circular No. 905. Contrary to the claim of the lower court,
this circular did not repeal nor amend the Usury Law but simply suspended its effectivity.

The rate of interest was agreed upon by the parties freely. Eusebio did not
question that rate. The New Civil Code provides that contracting parties may establish
such stipulations, clauses, terms and conditions as them may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public
policy. The SC held that it finds no valid reason for the lower court to impose a 12% rate
of interest on the principal balance owing to the bank by Eusebio in the presence of a
valid stipulation.

Central Bank Circular No. 905 provides that in a loan or forbearance of money,
the interest due should be that stipulated in writing, and in the absence thereof, the rate
shall be 12% per year. Only in the absence of a stipulation can the court impose the
12% rate of interest.

Therefore, the SC modified the decision of the lower court and that the rate of
interest that should be imposed be 23% per year.